US: unlikely to fall from the fiscal cliff.

Author:Mann, Joseph A.
Position:LT CFO: MIAMI

The fiscal cliff--the combination of tax increases and automatic spending cuts decreed by US Congress--presents a serious threat to the US economy this year, but full execution of the measures is unlikely since it would drive the economy into recession, Kathryn Rooney Vera, director of macroeconomic research at Bulltick Capital Markets, told participants during December's Latin Trade CFO Forum held in Miami.

The US economy has the potential to grow by 2.3 percent this year, but is likely to grow by less than 2 percent, she told the forum.

The full impact of the fiscal cliff, already affecting the economy, would equal more than $607 billion in 2013 or 4 percent of nominal GDP, she noted, and if fully implemented would push the economy into a recession during the first half of the year. The economy would return to growth in the second half of 2013, posting marginal growth for the year as a whole.

Rooney Vera said then that it was logical to expect tax increases as a result of the fiscal cliff negotiations, since the Democrats have the stronger hand in talks. The top 2 percent of earners will see taxes increase.

Moving to another key international player, the Bulltick executive said she believed that a hard landing in China over the next few years was unlikely. Chinas GDP growth should reach 8 percent in 2013 and the future outlook depends on how quickly China can harness the consumption model, as opposed to its current export model, she said.

Latin America, meanwhile, has shown itself to be quite elastic in absorbing economic shocks, and should post GDP growth of 1.4 percent in 2013, down from this year's IMF estimate of 1.5 percent.

Mexico is set to outperform Brazil, with projected GDP growth of 4 percent in 2012. For 2013, Mexico should grow by 4 percent.

Brazil, which at 5 percent unemployment is at full employment, has the potential to show GDP growth of 3.7 percent this year, but will likely grow by just 1 percent, Rooney Vera forecast, even with a big government stimulus and reduced taxes on durable goods.

Currently, Brazil has a consumption-driven, government stimulus model. It must increase investment and move to a competitive model, she said. Investments in education and research and development could prove to be a...

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